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US small-capitalisation stocks have once again begun to widen the performance gap against their larger counterparts, highlighting the recent revival of the “Trump trade”.

The Russell 2000 index of small-cap equities has boosted its post-US election rise to 16.8 per cent, from as low as 12.6 per cent on March 22. The move, which has accelerated over the past 10 days, has lifted the Russell’s relative gain over the large-cap S&P 500 to about 6 percentage points, from 2.6 pp on the same day in March.

Small caps are seen as something of a barometer for Wall Street’s enthusiasm for the Trump administration, since they typically face higher tax rates than large caps and are also thought to be more exposed to the domestic economy.

Small caps surged immediately following the the November election, far outpacing the gains in large caps. However, the excitement cooled sharply after the Trump administration’s failure to pass measures to repeal and replace Obamacare in Congress, highlighting the fractures in Donald Trump’s Republican party.

Mr Trump on Friday said he plans to unveil a “massive tax cut” as early as this week, a promise investors are likely to closely scrutinise.

Hussein Sayed, chief market strategist at FXTM, called the tax reform plan a “a crucial test for the new US administration, especially now that markets have grown sceptical of its ability to deliver”.

Citigroup strategists note:

We still expect stronger growth, rising inflation and eventually tighter policy to drive market prices over the medium term, however in the near-term there is good reason to question whether or not we will actually see the widely anticipated ‘Trumponomics’ related fiscal stimulus and the reflation trade that drove risk appetite for much of [the first quarter].